The Economic Road to Perdition: Healthcare & Minimum Wage

Perhaps for policy reasons, and certainly for political reasons, it is impossible to unwind reliance on employer-provided insurance. But this fact, combined with the “preexisting conditions” consensus, means that henceforth the health-care debate will be about not whether there will be a thick fabric of government subsidies, mandates and regulations, but about which party will weave the fabric.

 --- George Will

This is the frustrating essence of the current debate about the GOP healthcare bill.  Once you concede that government should be involved in running healthcare, you are then reduced to arguing about which forms of intrusion are the least harmful. Clearly Obamacare has been horribly harmful. Arguably the GOP alternative is less harmful. But either way you are on the road to economic perdition and have abandoned the principle that systems work best when individuals are allowed to make free choices.

The same reasoning applies to the battles over Minimum Wage laws. Once you concede that government should be involved in setting prices for things, you are reduced to arguing about the amount of damage various forms of intrusion incur. In 1971, President Richard Nixon declared a "freeze" on all prices and wages in the United States. This was an attempt by government to control the inflation that it itself had created. Predictably, it ended disastrously. Minimum wage laws have been around in the US since 1938. The economic effect of any price floor is to create a supply surplus. If you set a minimum price for lemons you will have a surplus of unsold lemons. If you set a price floor for wages, you will have a surplus of labor, otherwise known as unemployment. The Law of Demand is not widely debated -- except when it conflicts with Utopian fantasies.

Until recently Minimum Wage laws have not been especial controversial, but only because the price floors have been set not too far above the market price for low skilled labor. Hence the unemployment surplus has not been terribly noticeable. Now comes along the Seattle City Clowncil to declare that the wage floor rise should increase by 60%. Suddenly the unemployment surplus becomes quite noticeable, making headlines all over the country.

It would be nice if we could recognize that a) government cannot control the price of anything whether it be wages or medical care and b) in trying to do so it will wreak economic damage, the amount of which will vary according to just how far from economic reality it has strayed. But we won't. The (rather spineless) GOP has given up on having that discussion. They are now engaged in the determination of just how much economic damage they are willing to impose on the country. Obamacare was too much. Their plan is just the right amount of damage  -- they contend. Seattle's Minimum Wage law was clearly too aggressive. Let's scale it back and have a smaller number of low-skilled workers be priced out of a job.

Are we left to arguing that the only thing problematic about heroin is if you inject a little too much of it?

Third Party Payments are Why Healthcare Costs Are So High

Mark Perry at AEI posts this chart showing how little of health care costs are now paid for by the people receiving the service. Is it any wonder that prices would be rising rapidly when we have almost totally removed incentives for consumers to monitor prices and control usage.

What do you think would happen to the cost of food if people only paid directly for 10% of the cost of what they ate?

The Life Expectancy Myth

It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.  --- Mark Twain

One of the most often cited reasons in support of socialized healthcare is the fact that the United States spends more per person on medical care than any other nation, yet our life expectancies are lower.

That statement is actually true. However, as Robert Ohsfeldt pointed out in his book The Business of Health, the reason it is true is because Americans have a very disproportionate tendency to kill themselves. If you exclude homicides and auto accidents from the data, US life expectancy is #1 in the world. While our health care system is doing a poor job of preventing shootouts and drunk driving, it is doing a good job of healing the sick.

One of the exercises we had in my first economics class was to write a paper using statistics to "prove" something that was demonstrably false. It tuned out to be an easy assignment (I think I proved that church attendance caused crime rates to increase). In this case, it turns out (not all that surprisingly) that there are many things that affect mortality besides health care. Always look behind the statistics.

Government Control=Increasing Costs

Let's examine six fairly basic needs of human beings:

1. Clothing
2. Food
3. Shelter
4. Health care
5. Education

These are ranked in increasing order of the government's control and subsidy of their creation and delivery.

They are also ranked in the increasing order of inflation adjusted cost increases over the last fifty years.

Coincidence? When government subsidizes something, the cost will rise much faster. Which leads to cries for more government subsidy. That's a pretty neat scheme -- if you work in government. Not so much if you're paying for it as a taxpayer or consumer.